Balancing and Ruling the Cash Book.—The cash book in its simple form is balanced and ruled in the same manner as a ledger account. When the balance is brought down to the new section it is usually entered in the second or total column, thus reserving the first or detail column for the daily or weekly cash receipts, and separating these items from the balance brought down from the previous period. (See Forms 10 and 11.)
When the record is to be transferred to a new page, either the current page (double page) is balanced and ruled and only the balance is carried forward, or the current page is totaled and both debit and credit footings are carried forward as shown in [Chapter XIV] for the ledger cash account. The cash book is closed, ruled, and transferred as of the same date and on the same line for both sides, although usually there is room for more entries on one side or the other, which may be closed by diagonal ruling. This is done in order to keep the record of the receipts of a given period and that of the disbursements in nearly exact juxtaposition, and thereby facilitate a review of the cash movements for that period.
The Cash Short and Over Account.—It sometimes happens that when the cash book is balanced, the amount which ought to be on hand as shown by this balance, does not agree with the amount of cash on hand as shown by actual count. The discrepancy may be due to failure to enter some items of receipts or disbursements in the cash book, or to errors in making change; or it may be due to petty thieving by the cash clerk. If the error cannot be rectified at the time, an entry is made in the cash book, on whichever side necessary, in an amount sufficient to bring the book balance into agreement with the actual cash balance. The account to be debited or credited, as the case may be, is entitled “Cash Short and Over.” If the correct charge or credit is afterwards determined, the item or items should be transferred from Cash Short and Over to their proper accounts. Usually the Cash Short and Over account is treated as an income or expense account and closed into Profit and Loss at the close of the period. Sometimes it is treated as an asset or liability account, depending upon the nature of its contents, i.e., the amount of the discrepancy shown and its probable cause.
The Cash Purchase and Sales Transactions.—A standard method of handling the cash purchase transaction when it is desired to keep a record of the volume of business done with each vendor, was explained on [page 140], where the purchase was shown to be “washed” or cleared through the vendor’s account. A more direct method is sometimes used.
When purchases are made for cash, a complete record of the transactions is made by the entry:
- Purchases
- Cash
Here there is evidently a conflict of places of original record. The transaction being a purchase, record should be made in the purchase journal; and since it is also a cash transaction, record should also be made in the cash book. However, if an independent record were made in both places, a duplication of the transaction would result, since entry in either journal is a complete debit and credit record. The transaction would be entered twice in full, causing an inflation of the purchases and cash disbursements. In the purchase journal, the credit to Cash would be set up at the time of the transaction and at the time of summarization the debit to Purchases would be included in the total of the Purchases, thus completing the ledger record. In the cash book the debit to Purchases would be set up at the time of the transaction, and when the summary was made the credit to Cash would be in the Cash total. Entry in both journals would, when posted to the ledger, bring about two debits and two credits for the same transaction.
To overcome this difficulty the following methods are commonly employed:
1. The record is made complete in both journals, but the credit to Cash from the purchase journal record is not posted, because that credit will be posted from its record in the cash book. Similarly, when posting the cash disbursements journal, the debit to Purchases is not posted, because that will be posted from the purchase journal. In this way original record may be made in both journals and each journal will then show by its total what it is intended to show, viz., total purchases and total cash disbursed, respectively. In the secondary record, the ledger, only half of each journal entry is set up, the debit to Purchases from the purchase journal and the credit to Cash from the cash book. This prevents the inflation mentioned above and does not destroy the equilibrium of the ledger because there is omitted, when posting from the cash book, a debit equal in amount to the credit omitted when posting the purchase journal.
2. The method explained on [page 140] is used with this variation: The record in each journal shows the individual vendor’s account, but at posting time no vendor account is set up in the ledger, neither the credit to the vendor’s account shown in the purchase journal nor its offsetting debit shown in the cash disbursements journal being posted.